Wage, benefit, and compensation growth

A weekly presentation of downloadable charts and short analyses designed to graphically illustrate important economic issues. Updated every Wednesday.

Snapshot for October 11, 2000

Wage, benefit, and compensation growth Because of persistently low unemployment and the acceleration of productivity — two related phenomena — there has been an acceleration in the growth of worker’s pay (inflation-adjusted) since 1995. The chart below shows this acceleration but illustrates how the trends for wages, benefits, and total hourly compensation have differed remarkably.

In the early part of the business cycle, from 1989 to 1995, there was slow growth in wages, benefits, and total compensation — each growing 0.4% to 0.6% annually. This slow growth in pay was even slower than that of the 1973-89 period known for “wage stagnation”. Starting in 1996, however, wage growth accelerated, resulting in a 2.7% annual growth between 1995 and 1999, fully two percentage points higher than before. But a very different trend emerged for benefits — the employer costs for pensions, health insurance, and payroll taxes. Benefits, inflation-adjusted, actually fell at a 2.1% rate over this period, reflecting a decline in pension contributions and a lowering of employer health care costs relative to inflation. This trend is interesting in it own right but also has implications for an analysis of labor market trends: the acceleration of compensation growth (wages and benefits combined) has been far less than that for wages. Compensation growth accelerated from 0.6% to 1.8% annually, suggesting that wage growth is a less accurate indicator of compensation growth than previously assumed.